Important Types of Stock Trading

Stock trading offers a variety of opportunities to stock investors to make money. The beauty of stock trading lies in its immunity flexibility. You can invest in stock trading as a hobby, a part time business or as a full time source of income.

You can invest as little an amount as you spend on your lunch in a restaurant, or, you can invest hundreds and thousands of dollars.

You can trade in stocks for as fast as a few moments. You can finish off your trade by the end of the day, or, you can invest for months, years and all through your life. There is no need to 'wind up' your business.

The time span and the amount of money you invest depend upon your personal requirements, predilctions and financial goals.

There are three ways you can invest for short terms. You can trade in stocks as position traders, swing traders and day traders.

1. Position Trading

Position trading can be defined as a trading style or strategy where you hold an investment position for an extended period of time which may range from days, weeks or months at a time.

Of all the three trade types, position trading is the longest term trading style. As a position trader, you do not have to sit glued to your monitor like a day trader and keep waiting anxiously what will happen the next moment.

In position trading, you keep waiting for the fundamental changes to come about that affect the value of your stock. You can also use some quality analysis tools for long term technical analysis. A combination of technical and fundamental analysis can go a long way to help you evaluate the trading opportunity. You do not have to enter the market with a view to exit it soon as is done by day traders.

Even if you do not use an analysis tool, you may collect a lot of fundamental information from financial magazines and newspapers about the value of your stock.

Position trading is especially useful for those who want to supplement their income without devoting lots of time in front of the computers. You can study the stock market any time you when you feel free.

2. Swing Trading

Broadly speaking swing trading involves trades that are normally held for a couple of days to a few weeks. Swing traders hold the stocks for shorter periods than the position traders. Swing traders try to earn profits by trading the stock "on the basis of its intra-week or intra-month oscillations between optimism and pessimism."

The basic strategy in swing trading is to buy a consistently moving stock after it has completed its period of consolidation and correction. The strongly trended stocks make fast moves after their correction period is over. The alert swing traders hold the stock for a period of 2 to 7 days and sell it off making a profit of 5 to 25%.

They repeat this process over and over again. Swing traders basically try to capture the quick stock moves. You buy a stock when it is in correction mode and sell it as soon as it reaches certain profit level after the correction.

Swing traders try to ride the swings in the market. They usually buy few stocks and aim at making big profits. Since they buy few stocks, they obviously pay less brokerage.

The secret of success in swing trading lies in looking for the changes in the market that are driven more by the sentiments than by some fundamental reasons.

Swing traders usually spend two hours daily in their research. They usually rely on the daily and intraday charts to understand the stock movements.

3. Day Trading

Day trading, as the name suggests, usually restricts the trading activity during the trading day itself. It involves buying and selling the stocks within a short span of time. Day traders buy and sell their stocks from the time the market opens in the morning and sell them away before it closes. This, however, is not the hard and fast rule. They can hold their stock for the next day or even longer if its price is falling.

Day trading is often considered risky. But it can become profitable for the serious investors who have learned the tricks of day trading through study and experience. They know when to get in and get out of a trading position. Successful day traders are usually intelligent, critical and objective in their approach. They do not go by their emotions like the novices who tend to lose more often.